Profit Taking Stifles Rally; Dow Drops 2.07

Stock prices closed lower Wednesday for the second straight day as more investors entered the market and skimmed off Wall Street’s record gains in active trading.

The Dow Jones average of 30 industrials closed at 1,542.43, down 2.07, after a brief rally led by the blue chips. On Tuesday, the Dow fell 8.60 points from an unprecedented high of 1,553.10, the indicator’s 36th record achieved this year.

“I think the market’s great fireworks are in the past,” said Michael Metz, an analyst with the New York investment firm Oppenheimer & Co. “My feeling is that it’s tired, not exhausted, and will rest for awhile.”

Larry Wachtel, market analyst for Prudential-Bache Securities, said: “Yesterday and today were the first two days where people came in and said, ‘I don’t care where it’s going, I want to get out, I want my money.’ ”

Indexes Close Down

The New York Stock Exchange’s composite index, which measures all Big Board-listed issues, closed at 120.68, down 0.49. At the American Stock Exchange, the market value index was 243.32, off 0.53.

Decliners outpaced gainers by a three to two on the New York Stock Exchange, where volume totaled 137.89 million shares, compared to 155.23 million on Tuesday.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 169.87 million shares.

The two-day decline has dampened a drive in which the Dow has climbed more than 250 points since late September, largely on momentum and the prospects of lower interest rates and an improved economy in 1986.

“I think we’re in for a period of intermittent profit taking,” said Richard Schmidt of the Hartford-based brokerage Advest Inc. After the profit takers finish with the market, he added, “those people who were waiting to get on will get on. You’ll start seeing a seesaw movement for awhile.”

Among the most active NYSE-listed issues was Western Union, which rose 3/8 to 13 1/8 on volume exceeding 3.9 million shares. Earlier the stock was trading heavily at 14 7/8, up 2 1/8, on speculation that Federal Express was prepared to make a bid of $20 a share for the company.

Also traded heavily was Texaco at 29 5/8, up 2. Texaco said it had won a court order temporarily stopping Pennzoil from seizing its assets to enforce an $11.1-billion judgment against the country’s third-largest oil company.

Both GAF and Union Carbide rose sharply in heavy trading on rumors that GAF was preparing to increase its $4.13-billion offer for the chemical giant. GAF stock rose 4 1/2 to 62 7/8 and Carbide rose 1 3/4 to 72 3/4.

The stock of Teledyne, which has extensive holdings in other companies, shot up 4 1/8 to 301 after the firm sold off its GAF shares. Wall Street sources said Teledyne’s stock increased on the prospect that it would use profits from the sale to buy back some of its own stock.

Polaroid’s stock climbed 3 to 41 3/4, while Eastman Kodak’s fell 2 to 47 7/8 after rumors swept the market that Polaroid would win a patent-infringement judgment against its competitor.

Declining stocks hit auto makers, retailers, airlines, electronics firms, financial firms, oil companies and drug manufacturers, but utilities showed gains, notably Ameritech at 106, up 1 1/8, and Nynex at 96 7/8, up 1 7/8.

Prominent losers included Atlantic Richfield at 62, down 1; Digital at 129 1/2, down 1 1/8; Upjohn at 129, down 4 1/2, and Chase Manhattan at 67 1/8, down 1 3/8.

Large blocks of 10,000 or more shares traded on the NYSE totaled 2,746 compared to 3,179 on Tuesday.

The Wilshire index of 5,000 equities closed at 2,148.802, down 7.842.

Standard & Poor’s index of 400 industrials fell 1.03 to 232.79, and S&P;’s 500-stock composite index was 209.81, off 0.84.

Exchange Posts Record Volume

The NASDAQ composite index for the over-the-counter market closed at 322.48, off 0.77.

On the Pacific Stock Exchange prices closed lower in active trading. There were 293 gaining issues, 410 declines and 149 unchanged. A record volume of 10.29 million was reported.

In the bond market, prices slipped and interest rates moved higher as the previous session’s rally faded.

The yield on a benchmark 30-year Treasury bond moved up to 9.40% from 9.35% late Tuesday.

Fresh signs of economic weakness and expectations of continued low inflation due to recent energy price declines have encouraged speculation in recent days that the Federal Reserve Board would loosen its monetary policy.

But analysts said the bond rally ran out of steam Wednesday partly because traders became discouraged by an increase in the federal funds rate. The rate, which is the interest on reserves banks loan one another overnight, rose to 8.75% from 7.875% late Tuesday.